Establish the Nature of the Production Constraints

1. Total the work load for the bottleneck work center (s) for the
next month. Your MRP system should be able to provide loading
numbers by work center. To determine loading, only consider cycle
times, excluding setup times, queue times, move times, etc. The
bottleneck will typically be the work center with the greatest load
to capacity ratio.

2. Determine the net capacity of the bottleneck. This net
capacity must exclude all nonproductive losses due to breakdowns,
maintenance, involuntary down time, etc. It must however include the
time allocated for productive work and setups. The net capacity
should reflect the work center's historical ability to convert
capacity into the production of salable parts. If this information
is not available, you do not understand your environment well
enough.

3. Usually, the net capacity will exceed the projected load. If
not, spread the load over the planning horizon or increase the
capacity. Address this before thinking about KANBANs. Subtract the
load from the net capacity to determine the residual capacity
available for setups. For example, if the net monthly capacity is
252 hours (based on 21, 16 hour days, minus 25% nonproductive down
time) and the projected load adds up to 212 hours, the residual
capacity available for setups will be 40 hours over that month.

4. Total the setup times for all the parts that must be produced
by the^bottleneck. If 20 parts must be produced and they each
require a one hour setup, this totals 20 hours of setups for one
complete production cycle through all these twenty parts.

5. Divide the total setup hours from point 4 by the residual
capacity from point 3. This will indicate the number of months (or
weeks) which will elapse between each complete production cycle. In
our example, the total of 20 setup hours is divided by the 40
residual hours (from point 3), resulting in a 0.5 months production
cycle. On average, then, each part will be produced twice a month,
resulting in an average inventory of one week (average inventory,
excluding safety stock if any, is equal to the lot size divided by
2). This indicates an inventory turnover rate of 52 per annum. This
also means 40 lots will be put into production monthly.

Determine the Size of Production Lots

6. Determine the average production lot size by dividing the
number of lots per month into the total load for the month. Thus,
the 212 load hours are divided by the 40 lots, giving an average lot
duration of 5.3 hours, or 5 hours and 18 minutes. If smaller lots
were produced, more setups would be required, wasting too much
capacity in setups. On the other hand, larger lots would simply
build inventory or reduce equipment utilization.

7. For low consumption items, reduce the calculated lot size if
the resulting stocks exceed twice the level required by the turnover
objectives. If, for example, one of the parts has a monthly demand
of 100, and the production rate is of 250 parts per hour, a 5.3 hour
lot will yield 1325 parts, equivalent to 13 months of consumption.
That's too much. If the target turnover rate is 6 turns per year
(for an average inventory of 2 months), the maximum lot size we want
to produce is 400. At the limit, we could go to 4 turns per year and
lot sizes of 500, knowing that with the other parts, the average
turnover rate will be much more aggressive.

As a rule, lots should never represent more than 6 months of
demand; much less if there are shelf life considerations or product
changes being envisioned. Although certain lot sizes are reduced,
the lot sizing for the other parts should be left as they are. The
small margin thus obtained will be used advantageously for
opportunistic priority management once in the KANBAN technique is
implemented in production.

The objective here is to establish a minimum nominal lot size
allowing a sufficient production throughput while at the same time
allowing the operator to reconsider his priorities often enough to
be responsive to actual demand patterns. With KANBANs, this priority
assessment is done every time a production lot is completed.

The operator consults his KANBAN planning board where he or she
posts all the KANBANs returned by his or her client(s), to determine
the next priority.

If a part shows a large demand, don't be tempted to increase its lot
size. This is unnecessary because if the item really is really such
a high mover, the customer will return the KANBANs just as fast,
occasionally allowing a "back to back double lot," thereby "saving"
a setup. This double lot can occur if the need arises, but would not
be mandated every time that item is produced if the need for more
product does not really exist, or other products are more urgently
required. The other advantage of smaller nominal lot sizes is the
fact that the operator has the occasion to reconsider his priorities
more often. This reduces the reaction time to demand fluctuations,
and,.as a result, the amount of WIP on the floor.

**To Be Continued**

**For balance of this article, click on the below link:**

**Lean Manufacturing Articles and go to Series 01**